KIEV, Nov, 5 - Ukraine’s national energy company Naftogaz Ukrayiny has paid Russia's Gazprom $1.06 billion for October natural gas supplies, Naftogaz said on Friday.

The payment, the largest so far this year, comes after the government injected about $1 billion to keep the state-owned company afloat.

In a statement, however, Naftogaz has sought to deny allegations it was having any difficulties.

“Naftogaz every month in full and on time fulfills commitments to Gazprom on payment for the supplied natural gas,” Naftogaz said.

Ukraine is buying Russian gas at about $253 per 1,000 cu m in the fourth quarter, compared with $248/1,000 cu m in the third quarter.

Naftogaz needs to make monthly payments to Gazprom within the first week of each next month to comply with a natural gas agreement both signed in January 2009.

A failure to pay on time for gas imports may provoke Gazprom to suspend gas supplies to Ukraine that may in turn affect other countries in Europe.

Naftogaz paid about $715 million to Gazprom in October for natural gas imported in September, compared with $711 million paid in September for gas imported in August.

The government injected about $1 billion into Naftogaz late last month, days before the Gazprom bill was due.

The government issued state bonds worth 7.4 billion hryvnias, or $940 million, and had immediately diverted the proceeds toward increasing the capital of Naftogaz, according to a government.

The transaction is suggesting that Naftogaz is short of cash to pay for Russian gas imports and relies on the government’s bailout in order to avoid default on gas payments, industry analysts said.

The latest transaction increases the capital of Naftogaz to 37.3 billion hryvnias, according to the resolution.

This is the second time the government increases Naftogaz capital over the past two weeks after boosting the capital by 5.7 billion hryvnias to 29.9 billion hryvnias on Oct. 12.

The developments underscore significant financial problems that Naftogaz faces with making timely payments for gas imports from Russia.

The problem appear to be persisting despite the government’s move earlier in August to hike by 50% domestic gas prices that had allowed the company to raise more money from domestic consumers.

The hike was demanded by the International Monetary Fund as a condition for resuming lending to the government.

The developments explain why the government has been persistently seeking to lower natural gas prices in talks with Russia over the past six months.

The latest round of talks, however, collapsed on Wednesday after Russian Prime Minister Vladimir Putin and his Ukrainian counterpart Mykola Azarov, at a meeting in Kiev, had failed to agree on lower prices.

Naftogaz needs to make monthly payments to Gazprom within the first week of each next month to comply with a natural gas agreement both signed in January 2009.

A failure to pay on time for gas imports may provoke Gazprom to suspend gas supplies to Ukraine that may in turn affect other countries in Europe.

In 2009, the government of then Prime Minister Yulia Tymoshenko - also through bond issues - had boosted the capital of Naftogaz by 18.6 billion hrvnias to 24.1 billion hryvnias. The raised money went to pay for Russian gas imports to avoid default. (sb/ez)